Management

The Succession Woes of the People Picking Microsoft's Next CEO

(Corrects first paragraph to note that Reed Hastings is a former member of Microsoft's board.)

Let’s pause the party game of betting on who will replace Microsoft Chief Executive Steve Ballmer for a minute to look at who will make that choice. Microsoft’s board has appointed a special committee to help decide if the next chief executive will be an insider like Julie Larson-Green, the prodigal Stephen Elop of Nokia (NOK), a buzzy outsider like eBay’s (EBAY) John Donahoe, or even a former board member such as Netflix (NFLX) boss Reed Hastings. It’s a daunting task for a board that has never had that responsibility before—Bill Gates handpicked Ballmer as his replacement 13 years ago. The record of those leading the charge could prompt some concern, too.

Start with John Thompson, the search committee chairman who retired as CEO of Symantec (SYMC) in April 2009. At the time he talked about the two-year succession process that led to Chief Operating Officer Enrique Salem getting the job, and he stayed on as chairman to ensure a smooth transition. Three years later, Salem was fired amid sagging sales and profit. Thompson doesn’t deserve all the blame, of course. Still, investors may have balked at hearing him predict Salem would “continue to drive the success of our team” at a software giant that was struggling amid a sluggish culture and costly mistakes, including its $13.5 billion acquisition of Veritas in 2004. While Thompson brought industry knowledge and independence to Microsoft’s board when he joined last year, his impact on its ability to hire and fire leaders remains unclear.

Another director charged with screening CEO candidates is board newbie Steve Luczo. As the chairman and CEO of Seagate Technology (STX), Luczo knows what it’s like to be battle tested. He’s managed the business through recessions, a buyout, an IPO, and even Thai floods that hampered supplies. Then again, he was also instrumental in picking CEO Bill Watkins as his replacement in 2004, only to reclaim the job five years later when his successor produced a tumbling stock price and such memorable moments as when he told a reporter “we’re building a product that helps people buy more crap—and watch porn.” While Luczo returned the company to record revenue and profit, he’s been notably silent on his role in hiring and firing a man who didn’t succeed in the job.

A third member of the search committee is Chuck Noski, who stepped aside as chief financial officer of Bank of America (BAC) in 2011 after one year on the job. He left the post because a family member’s illness prevented him from relocating to Charlotte, though reports that boss Brian Moynihan failed to inform him that the Fed had rejected a plan to increase dividends may have muted his regrets about leaving that role. While Noski is an experienced director who is also on the boards of Avon Products (AVP) and Avery Dennison (AVY), he has been in that position at Microsoft for a decade in which the critics felt the board was too soft on the underperforming Ballmer.

The fourth member of the search committee? Bill Gates. While nobody cares more about who leads the company he founded in 1975, his loyalty to longtime friend Ballmer made some shareholders wonder if he’s the right person to judge what’s needed for Microsoft in the future. (While Gates may be the spiritual guru of the brand, 95 percent of the company is owned by other people.)

Of course, they will have the services of Heidrick & Struggles (HSII) to guide them—a search firm that’s had its own succession struggles as CEO Kevin Kelly recently stepped down. None of that precludes Microsoft’s board or its search firm from making the right choice for the future of the iconic tech company. But anyone betting on Ballmer’s replacement might want to consider who’s running the race.